Interest rates, exchange rates and annual holidays

As expected, the Monetary Policy Committee of the Bank of England has cut the base rate by 0.25% today.

The impact on the sterling-euro exchange rate was also predictable.

The article from the BBC touches on possible microeconomic impacts:

“The news is good for UK exporters whose goods become slightly cheaper. But observers say that British holidaymakers are likely to notice the pound’s weakness when they go on holidays to eurozone nations such as Spain, France and Portugal. “

I, for one, am pleased my summer holiday will be in Cornwall rather than Provence this year, and perhaps UK holiday resorts are anticipating higher demand than usual in 2008.

But given the strength of sterling against the dollar, perhaps a switch to holidays in the USA is likely?

A good evaluation question for A2 economists in particular, which rather neatly links microeconomic issues with the macroeconomic environment.

Students might like to consider the factors determining price and income elasticities of demand with respect to holidays in different countries and regions.

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